The takeaway, according to Merrill Lynch strategists: The BCB will stand pat next year.

The Brazilian Central Bank (BCB) released today the Inflation report for 4Q12. The report reinforced the message from the Copom minutes, pointing towards a long period of stable monetary conditions. The words follow the same lines as the last minutes, suggesting current monetary conditions are expansionary enough under the current scenario. Still, lower inflation projections for 2013 and 2014, amid a positive growth outlook, reduce the likelihood of hikes by end-2013. Given the tone of the language and lower expectations on inflation for 2013 onwards, we now project a stable rate for 2013, and postpone hikes until 2014, when we forecast gradual hikes throughout the year adding up to 150bp.

Still, even with BCB on hold, investors have plenty to ponder. Brazil’s government has recently enacted numerous programs to stimulate the economy–but have made investors play guessing games as to which companies will get hurt and which will benefit. On Wednesday, for instance, it said that would extend a payroll tax cut to retailers as well as manufacturers, which could boost Brazilian department stores, while also looking to make the economy more efficient.

But the government has also forced utilities to to keep prices low, which have hammered companies like Companhia Paranese de Energia, or Copel (ELP), which has dropped 26% this year.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. The Barrons.com Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.